Pressure growing on Take-Two Interactive

Shareholders seem to prefer taking EA's bid over holding out for more

By

DanGallagher

SAN FRANCISCO (MarketWatch) -- Shareholders of Take-Two Interactive Software Inc. are sending a strong signal that they would prefer to see the video-game maker enter buyout negotiations with Electronic Arts Inc. as opposed to waiting for a higher offer.

Two of Take-Two's
TTWO, -0.72%
largest shareholders have sold off large chunks of their positions on the stock, while another has filed a lawsuit against the company over its rejection of a $2 billion offer from EA
ERTS
last month.

In addition, other shareholders seem to be losing faith in the company, with Take-Two's shares trading below EA's $26 offer price for the last three days.

"This does not point to a strong consensus for holding out for more," Todd Mitchell of Kaufman Bros. wrote to clients Tuesday.

On Feb. 24, EA made public its desire to buy Take-Two after a private offer was rebuffed. Take-Two countered that it would be willing to discuss a deal after the release of its next big game -- "Grand Theft Auto IV" -- on April 29. See full story.

But shareholders do not appear willing to wait that long. On Monday, Oppenheimer Funds and a unit of Fidelity disclosed in filings with the Securities and Exchange Commission that they have drastically scaled back their Take-Two holdings.

Oppenheimer sold off nearly half its shares, bringing its total stake in the company to about 11.5% from 23%. Fidelity's stake plunged from more than 14% to about 2.8% -- suggesting that the two large shareholders do not believe a higher bid for the company will be forthcoming.

An individual shareholder -- Patrick Solomon -- sued Take-Two in a Delaware court for rejecting the EA bid. The suit also mentioned a compensation plan for top executives that was amended after EA made its initial offer but before the bid was made public.

"Take-Two's management has rejected EA's offer for $26 per share, claiming that it is not enough. Then it stuffed its own pockets with options and instituted a generous severance plan for employees if the company is taken out," according to Kaufman's Mitchell.

While Take-Two is slated to report results for its first fiscal quarter after Tuesday's closing bell, there is little in the report that is expected to bolster management's contention that EA's offer "substantially undervalues" its business.

Game titles such as "Bioshock" and "Carnival Games" are expected to be the main drivers for Take-Two's recent quarter. Analysts expect the company to post a loss of 49 cents a share on revenue of $211 million for the period ended Jan 31, according to FactSet Research.

Michael Pachter of Wedbush Morgan wrote in a report Monday that he expects the EA bid will go through. "We do not expect a competing offer, and think that EA will ultimately offer $1 to $2 per share more, sealing the deal."

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